Altria in deal talks with cannabis company Cronos Group

(Reuters) - Marlboro cigarette maker Altria Group Inc (MO.N) is in discussions with Canadian cannabis producer Cronos Group Inc (CRON.TO) about making a possible investment, Cronos said on Monday.

The announcement came after Reuters reported on Monday that Altria was in talks to acquire Cronos, as it seeks to diversify its business beyond traditional smokers.

Canada this year legalized recreational use of marijuana, and is seen as a testing ground for pot companies that expect to expand globally as other countries follow suit.

Cronos said no agreement had been reached with respect to any transaction, adding there could be no assurance such discussions would lead to an investment or other transaction involving the companies.

Altria, the parent company of Philip Morris USA, did not respond to a request for comment.

Cronos shares listed on the Nasdaq ended trading on Monday up 11 percent at $10.17, giving the company a market value of about $1.8 billion. Altria shares closed up 1.64 percent at $55.73 on the New York Stock Exchange on Monday.

A deal would mark one of the largest combinations between mainstream tobacco and the booming but volatile marijuana sector, which has seen interest from a variety of major consumer companies that are monitoring the industry for disruptive threats and faster-growing product possibilities.

In June, London-based tobacco company Imperial Brands Plc (IMB.L) took an undisclosed stake in closely held Oxford Cannabinoid. Constellation Brands Inc announced a $3.8 billion investment in Canopy Growth Corp (WEED.TO) in August, while Coca-Cola Co (KO.N) said in September it was watching the space for alliances that could potentially help it develop products containing cannabinoid oil.

Altria’s shares have fallen by more than 20 percent over the year, as cigarette smoking continues to decline in the United States. Federal data from earlier this month showed cigarette smoking among U.S. adults reached an estimated 14 percent in 2017, the lowest level ever.

Altria has invested in the e-cigarette sector in recent years through its Nu Mark subsidiary. It is also in talks to take a minority stake of between 20 and 40 percent in e-cigarette maker Juul Labs Inc, sources said last week.

Big tobacco companies such as Altria have been investing in e-cigarettes as U.S. tobacco smoking rates decline.

Reporting by Greg Roumeliotis and Harry Brumpton in New York; Editing by Susan Thomas and Peter Cooney